Title
Philippine National Bank vs. Hydro Resources Contractors Corp.
Case
G.R. No. 167530
Decision Date
Mar 13, 2013
DBP and PNB formed NMIC, which defaulted on a contract with Hercon (later HRCC). HRCC sued, seeking to pierce NMIC's corporate veil to hold DBP, PNB, and APT liable. SC ruled NMIC had separate juridical personality; no evidence justified piercing the veil. APT, as trustee, was not liable but must ensure compliance.
corporate veil
parent corporations
liability
A

Case Summary (G.R. No. 167530)

Factual Background

In 1984 DBP and PNB foreclosed on the assets of Marinduque Mining and Industrial Corporation and organized Nonoc Mining and Industrial Corporation to resume operations, holding 57% and 43% of NMIC’s shares respectively save for five qualifying shares. In 1985 NMIC engaged Hercon, Inc. to perform a mine stripping and road construction program under a contract priced at P35,770,120. After accounting for payments and credits, Hercon asserted an unpaid balance of P8,370,934.74. Repeated demands including a final demand dated August 12, 1986 went unheeded. Hercon filed suit in the RTC seeking to hold NMIC, DBP, and PNB jointly and severally liable. Hercon was later merged into Hydro Resources Contractors Corporation (HRCC), and the complaint was amended to substitute HRCC as plaintiff. Following Proclamation No. 50, DBP and PNB executed deeds of transfer on February 27, 1987 conveying certain assets and liabilities to the National Government, which transferred them to the Asset Privatization Trust (APT) as trustee, prompting a further amendment to implead APT as defendant.

Trial Court Proceedings and Judgment

The RTC of Makati tried the case and, in a November 6, 1995 decision, found in favor of HRCC for P8,370,934.74 plus legal interest and attorneys’ fees. The RTC pierced NMIC’s corporate veil under the alter ego theory and held DBP and PNB jointly and severally liable with NMIC on the basis that, except for five qualifying shares, DBP and PNB owned NMIC and that NMIC’s board was composed of nominees from those banks. The trial court dismissed the complaint against APT but directed APT, as trustee, to ensure compliance with the judgment.

Court of Appeals Ruling

On appeal by DBP and PNB, the Court of Appeals affirmed the trial court’s judgment on liability but modified the disposition by reversing the dismissal as against APT and including APT’s successor, the Privatization and Management Office, as jointly and severally liable with NMIC, DBP, and PNB. The CA deleted the award of attorneys’ fees and dismissed other claims and counterclaims. The appellate court reasoned that NMIC was a mere adjunct, business conduit or alter ego of DBP and PNB, citing majority ownership, the small number of qualifying incorporators, and alleged interlocking directorates as indicia of control and dominion justifying piercing the corporate veil.

Issues Presented to the Supreme Court

The consolidated petitions raised two principal issues: whether the RTC and Court of Appeals correctly pierced the corporate veil to hold Development Bank of the Philippines and Philippine National Bank solidarily liable with Nonoc Mining and Industrial Corporation, and whether the Asset Privatization Trust, as assignee and successor-in-interest under the deeds of transfer to the National Government, incurred liability for NMIC’s indebtedness to HRCC.

Parties' Contentions

Petitioners DBP and PNB maintained that NMIC possessed a separate juridical personality and that majority ownership and board composition alone did not establish the requisite domination to justify veil piercing. They denied that any stock control was used to perpetrate fraud or injustice against HRCC. They further contended that any liability of DBP and PNB had been transferred to and assumed by the National Government through APT. APT argued that it did not unqualifiedly assume all liabilities and that HRCC had not shown that the adjudged liability was among those assigned to the National Government. HRCC defended the rulings below, asserting that the evidence showed NMIC to be an alter ego of DBP and PNB because of ownership, shared officers, and financing, and that APT, as successor, assumed the banks’ liabilities.

Supreme Court Ruling — Disposition

The Supreme Court granted the petitions. It held that the complaint against Development Bank of the Philippines, Philippine National Bank, and Asset Privatization Trust was to be dismissed for lack of merit. The Court ruled that only Nonoc Mining and Industrial Corporation was liable to pay HRCC the amount adjudged, P8,370,934.74 with legal interest from date of demand. The Court directed APT, as trustee of NMIC’s assets, to ensure compliance by NMIC with the judgment but refused to hold APT liable as a transferee where its assignors were not themselves liable.

Legal Basis and Reasoning on Piercing the Corporate Veil

The Court reiterated the doctrinal foundation that a corporation is a juridical person separate from its stockholders and that limited liability is the general rule. It recognized that the corporate veil may be pierced in narrow circumstances—where the corporation is used as an instrumentality or alter ego, to perpetrate fraud, evade obligations, or defeat public convenience. The Court emphasized caution and required clear and convincing proof of misuse. Relying on the three-pronged alter ego or instrumentality test, the Court required proof of: (1) complete domination of finances, policy, and business practice such that the corporation had no separate mind, will, or existence with respect to the transaction attacked; (2) use of that control to commit fraud, wrong, or violation of a legal duty; and (3) proximate causation of the plaintiff’s injury by the misuse. The Court concluded that the findings below rested largely on majority stock ownership and the asserted interlocking directorships, and that those indicia alone were insufficient. The Court found no convincing evidence that DBP and PNB dominated NMIC’s finances, policies, or practices to the requisite degree; no proof that they used control to perpetrate a fraud or wrong against HRCC; and no causal link showing that any asserted control proximately caused HRCC’s injury. The Court further observed that HRCC’s contractual correspondences, billing, and progress reports addressed and concerned NMIC and its officers, indicating HRCC dealt with NMIC as a separate juridical person. The Court also found insufficient proof of interlocking directorates and rejected analogies to precedent

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